There were close to 6,000 companies listed on the NYSE and NASDAQ exchange as of Q1 2023. It’s difficult to scan through an ocean of stocks and there are several hidden high-growth stocks. These stocks trade at a valuation gap considering the point that they are still undiscovered.
However, within equities, funds flow from overbought sectors or stocks to undervalued names. The hidden-gems of Wall Street are likely to be discovered sooner or later. Once that happens, the rally in these overlooked stocks can be stellar. Therefore, the best time to buy is when volumes are low and a clear valuation gap exists.
This column discusses three hidden high-growth stocks that are worth holding for the next five years. Multibagger returns seem likely from these fundamentally strong names backed by healthy growth and cash flow upside.
Let’s discuss the reasons to be bullish on these hidden-gem stocks.
Aker BP (AKRBF)
Aker BP (OTCMKTS:AKRBF) does not trade in the main exchanges and that’s the reason for low visibility. However, this oil and gas stock is poised for multibagger returns in the next five years. Besides the prospects of massive stock upside, AKRBF stock has an attractive dividend yield of 9.18%. I believe that dividend growth is likely to be robust.
The biggest reason to be bullish on Aker BP is low break-even assets. For Q1 2023, the company reported $3.3 billion and $2.9 billion in revenue and EBITDA respectively. Further, the operating cash flow after tax was $1.7 billion. These numbers are at a time when oil is trending lower. This makes it one of those hidden high-growth stocks.
It’s clear that Aker BP is a cash flow machine and with some prized assets (Johan Sverdrup), robust cash flows will sustain. This provides Aker with high flexibility for aggressive exploration activity. Also, with a leverage ratio of 0.16, the balance sheet is strong for potential inorganic growth.
Amdocs (DOX)
Amdocs (NASDAQ:DOX) is another hidden high-growth stock that’s poised for a sustained rally. DOX stock trades at an attractive forward price-earnings ratio of 16.7 and offers a dividend yield of 1.76%. Given the addressable market and the cash flow potential, I expect the stock to be a multibagger.
As an overview, Amdocs is a provider of software services and solutions to the communications and media industry. The company has global presence with a serviceable addressable market of $57 billion by 2025. This provides ample headroom for growth and the company has been investing in technology.
From a financial perspective, there are two reasons to like Amdocs. First, the company reported a record backlog of $4.11 billion as of Q2 2023. This provides clear revenue visibility. It’s worth noting that recurring revenue is over 70% of the total revenue.
Further, for 2023, Amdocs has guided for free cash flow of $700 million. The company’s FCF has been swelling. I believe that the company is positioned for FCF in excess of $1 billion in the next 24 months. This provides high flexibility for dividend growth and investments.
Borr Drilling (BORR)
Borr Drilling (NYSE:BORR) stock has surged by over 50% for the year. However, the stock still seems to be under the radar and is trading at an attractive forward valuation. To put things into perspective, BORR stock trades at a forward P/E of 14.8. For the year, the company has guided for revenue growth of 70%. Therefore, the price-earnings-to-growth-ratio indicator is pointing to a significant valuation gap.
The reason for this valuation gap is correction in oil price. However, I believe that the worst of the downside for crude is over. With factors of geopolitical tensions, production cut, and a dovish fed, oil is likely to trend higher. As a provide of modern jack-up rigs, Borr Drilling is positioned to benefit.
As of Q1 2023, Borr reported an order backlog of $1.64 billion. With new contracts at a higher day rate, the company expects significant EBITDA margin expansion in the current year. As cash flows swell, Borr will be positioned to deleverage or pursue fleet expansion.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
